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Friday, November 27, 2009

Dubai debt fears hit world markets hard

27 Nov 2009, AGENCIES

LONDON: World stock markets tumbled on Thursday as investors fretted over the debt problems at Dubai World, a government investment company, and the continuing slide in the dollar, which earlier fell to a 14-year low against the yen.

Markets are usually relatively quiet when Wall Street is closed for a holiday, as it is Thursday for Thanksgiving Day. Not so today, as the rest of the world digested the stunning news from Dubai that the government's flagship investment company was in financial trouble.

European markets followed Asia lower with the FTSE 100 index of leading British shares closing down 170.68 points, or 3.2 per cent, at 5,194.13, having been out of action earlier for over three hours because of technical problems.

Germany's DAX fell 188.85 points, or 3.2 per cent, to 5,614.17 while the CAC-40 in France was 129.93 points, or 3.4 per cent, lower at 3,679.23.

Sentiment in stocks was dented by the news that Dubai World, which is thought to have debts totaling around $60 billion, has asked creditors if it can postpone its forthcoming payments until May. That stoked fears of a potential default and contagion around the global financial system, particularly in banks and emerging markets.

"Fear of sovereign default in the Middle East rattled the markets," said Jane Foley, research director at

Banks bore the brunt of the selling in Europe, amid fears of potential exposure to Dubai. In London, Royal Bank of Scotland PLC was down nearly 8 per cent, making it the biggest faller on the FTSE. In Germany, Deutsche Bank was the biggest faller on the DAX, down around 6 per cent.

Investors were also keeping a close eye on associated developments in the currency markets after the dollar slid to a new 14-year low of 86.27 yen, while the euro pushed up to a fresh 15-month high of $1.5141.

By late afternoon London time, the dollar had recouped some ground and was trading at 86.55 yen, down 0.9 per cent on the day, while the euro was 1 per cent lower at $1.4988.

The continued appreciation in the value of the yen continued to dent Japanese stocks as investors worry that the rising currency will have a detrimental effect on the country's exports. Japan's Nikkei 225 stock average fell 58.40 points, or 0.6 per cent, to 9,383.24.

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